Trump’s Rosy Economic Message Faces a Reality Check

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1:15Josh Green:Inflation is plummeting. Incomes are rising fast. The roaring economy is roaring like never before. We are doing really well.

1:37Stephanie Flanders:I'm Stephanie Flanders, Head of Government and Economics at Bloomberg, and this is Trumponomics, the podcast that looks at the economic world of Donald Trump, how he's already shaped the global economy, and what on earth is going to happen next. And we're recording this on Wednesday morning, Washington time, not long after President Donald Trump delivered a nearly two-hour State of the Union speech where he addressed one of his biggest audiences at what in polling terms may be the lowest point yet of his second term. In his speech, he returned again and again to the same message on the economy.

2:10Stephanie Flanders:Everything is going great. And there is a lot that's going right with the US economy, certainly more than most economists would have expected on the day the president unleashed his so-called reciprocal tariffs last April. Growth and productivity in the US were both a lot higher than any other G7 economy. And this despite those tariffs, which, as it happens, the Supreme Court overturned last Friday.

2:35Josh Green:One of the primary reasons for our country's stunning economic turnaround were tariffs. I used these tariffs, took in hundreds of billions of dollars to make great deals for our country, both economically and on a national security basis.

2:52Stephanie Flanders:He's going to work very hard, he said, to fill the hole left by those tariffs and continue to punish trading partners for what he considers to be very unfair practices. But in the meantime, we are plunged globally into more uncertainty about exactly what the trade barriers are around the US economy and a lot more talking about one of the president's least popular policies. The combination of that State of the Union and the Supreme Court judgment felt like a good time to take stock. What those two things together mean for the president and specifically what they mean for his economic offer as his party goes into the midterms in the fall.

3:37Stephanie Flanders:Does he have an answer to the affordability question or will a strong economy and potentially new leadership at the Federal Reserve mean he doesn't really need one? Josh Green is national correspondent at Bloomberg Businessweek, author of the New York Times bestseller, Devil's Bargain, Steve Bannon, Donald Trump, and the National Uprising. Josh, great to have you back.

3:58Josh Green:Great to be with you.

3:59Stephanie Flanders:And Anna Wong, a frequent participant on this show, chief U.S. economist for Bloomberg Economics. Before that, she worked at the Federal Reserve, the U.S. Treasury, and Donald Trump's White House Council of Economic Advisers during his first term.

4:14Anna Wong:Great to be here.

4:18Stephanie Flanders:I'm kind of interested from both of you for your sort of top line thoughts on the actual state of the economy. Does he have a solid story to sell voters about the economic achievements of the first year in office? And I guess the second part of that is whether voters are likely to listen to that message. Josh, you did sit through that State of the Union. There's a lot of focus on what he might say about affordability, the state of the economy. You know, I hear your pain. How do you think he did?

4:49Josh Green:The good news from a White House standpoint is they wanted him to focus on economic issues and the economy. And for the most part, he did so. I think the trouble with Trump's speech was that the address he gave sounded like something you'd hear from a president with 80 percent approval ratings. But Trump is mired in the high 30s. And instead of empathizing with the many voters who tell pollsters that they're struggling, they're upset about the economy, about tariffs, about the cost of living, Trump basically gave a two-hour celebration of his own presidency. He said it's a golden age and that the country is bigger, richer, stronger than ever before.

5:26Josh Green:So if you're somebody who is listening, hoping that things were going to turn around, that Trump might pivot in a new direction, might refocus his presidency around issues of affordability, I'm not sure that you came away feeling much better than you did going into the night.

5:40Stephanie Flanders:One pushback on that, there has been a criticism of him that he's too gloomy about the state of the U.S. and that he has this kind of apocalyptic tone to him sometimes, whereas he was sort of sounding like some past presidents, at least in parts of the speech, being kind of uplifted about America, we can do anything together. You don't think that that positivity sells well with voters? It has traditionally with America.

6:05Josh Green:The way I think about it is that presidents, especially in State of the Union addresses, is what they generally try to do, Republicans and Democrats, is to balance optimism with empathy. Bill Clinton's famous line, I feel your pain, was an effort to say to Americans, I understand everybody isn't thrilled, everything's not perfect, but I have your concerns in mind, and I'm working to make things better for you. Trump fundamentally, I think, rejects nuance and prefers to speak instead in sweeping absolutes. And the absolutes we heard last night, I wrote some of them down as he got going, Nobody can believe what they're watching.

6:37Josh Green:We're winning so much that we really don't know what to do about it. If you're a Trump diehard, if you're doing great, maybe your AI company is booming. I think this speech probably resonated. But if you're somebody who isn't doing so well, who's anxious, who's struggling economically, again, I think it's a speech that would land in a way that would suggest maybe this president doesn't understand what I'm going through here. Doesn't sound like somebody who's about to solve my problems. And that was really the worry that a lot of Republicans and a lot of Republican strategists said to me. It's great to have him focused on the economy, but we need to make clear, he needs to make clear that he's going to hammer away on issues of affordability.

7:14Josh Green:And that really didn't come out in the speech last night at all.

7:17Stephanie Flanders:I think the idea that President Trump is not a great one for nuances is one of the more understated comments of this podcast. But Anna, it's practically your job description to put the nuance back in. From your perspective, that sort of two-sided thing that I put at the beginning, the actual state of the economy, what's the actual story he has to sell? And how do you think he's done in terms of selling it to voters?

7:40Anna Wong:I think he's in the same rabbit hole as the Biden administration in the last year, you know, in 2024, which is that they're trying very hard to message some developments in the numbers because, you know, in inflation numbers, we have seen some progress. President Trump rattled off a list of things that had seen slowing inflation. I fact checked it. It's true. Eggs has plummeted 48 percent in the last year. Fruits, chicken, rents and overall grocery bills have slowed in their inflation compared to the average during the Biden administration. But I think that's not the question that he needs to address in a state of union speech.

8:30Anna Wong:He wants to message those numbers out to his voters, but voters vote based on how they feel. And when they go to a grocery shop and see that beef prices is now 22 percent higher, they just don't feel that inflation is coming down, even though the numbers are saying that they are. The second thing that's really different in this economy compared to the Biden economy is real income. So real income growth during the four years of Biden was about 2.9 % every year. And in the first year of Trump, we had seen it grow 0.2%. In disposable income, real disposable income, it grew 0.9 % last year versus 1.9 % on average in the four years.

9:19Anna Wong:Biden. So while in the Biden administration, you have high inflation, but you also have higher real income growth. In the current administration, you definitely could feel the slowdown of the labor market and the increasing sense of job insecurity, perhaps due to a combination of AI and also just, you know, Doge, tariffs, all that is causing job growth to be slowing. So I think the vibes are just not great. And a speech that just focuses on the numbers rather than the experiences of people is not going to win many hearts.

9:56Stephanie Flanders:You've captured it in the sense that there's the higher prices, eggs had risen a lot and they were probably inevitably going to go down. But on a lot of things, they had risen a lot in the Biden years and then have not come down, even though we've obviously seen inflation, the rate of increase of prices go down. And then we did a big thing on affordability in the last few days. And even since President Trump took office, you have seen a big increase in some key areas. I think it's home insurance, utilities, electricity, you highlighted beef. So there are things that are moving in the right direction and other things that have just continued to be expensive from a consumer's standpoint.

10:33Stephanie Flanders:Without any action by the administration, Anna, do you see prospect for any of that looking better in the next six months? I noticed recently that you'd written a piece which sort of suggested you had been quite bullish coming into the start of this year, a number of pieces coming into place, and then some of those assumptions now being challenged.

10:53Anna Wong:I would say that the more they do, the worse it will get, because the kind of things they are putting forth are populist policy that tends to have unintended consequences and backfire. The whole thing about credit card cap, that likely is going to lead to increased credit in availability for the lower to mid income. So hurting the people precisely that they're trying to help. And then there's also the banning institutional investors from investing in homes. That academic research on the impact of that was also clear. It's going to reduce the supply of housing. And also the appointment of a new Fed chair who, on the face of it, just does not seem any more dovish than Jay Powell, the current one.

11:44Anna Wong:And if anything, the new Fed chair nominee injected more monetary policy uncertainty and perhaps did his part in raising some kind of equity premium after that announcement, which I think was a contributing factor to the sell off in the markets. So, and note that the stock rally was the one strong pillar of the Trump economy, and that was propping up the economy. And that one looks kind of shaky in 2026 already.

12:18Stephanie Flanders:Although we should say that we're not in the business of offering stock market advice on this show, God help us. But Josh, we should at least touch on the other big event of the last week, the tariff judgment. because I guess the most striking thing for many in response to that, not entirely surprising, Supreme Court ruling that he hadn't the right to impose about at least half of the tariffs that he'd imposed last year. I guess the surprise was how determined he was to immediately bring the tariffs back, despite the fact that they're not very popular. So I just wonder, are administration officials kind of frustrated that he's doubling down on this unpopular policy, resigned?

12:57Stephanie Flanders:Where do you think he stands on that?

12:59Josh Green:Certainly they're resigned. And I think this falls under Anna's line that the more he does, the worse it gets. Instituting a kind of slapdash 10 percent, now 15 percent tariff regime to cobble back what the Supreme Court struck down is not something that is going to help cost of living issues, affordability. It's clear in every poll I've seen that he is deeply underwater on the issue of tariffs. most Democrats, most independent voters, and a lot of Republican voters opposed his tariffs. They don't like the idea.

13:34Stephanie Flanders:Which is true going into the election, actually. It was the least popular. Even among his voters, it was the least popular.

13:39Josh Green:That's right. And there's almost a certainty this is going to cause continued disruption in the six months between now and the election. So this isn't something that I think is going to encourage a lot of Republican lawmakers to think things are going to get better now. He's found the right message. I think instead it's more of the same. And one of the things that we know about Trump that everybody around him knows about Trump is that Trump really, truly does believe in tariffs, thinks they're the key to his economic policy, and views the issue in black and white win or loss terms. Trump can never acknowledge when he's lost, whether it's an election or a Supreme Court decision.

14:16Josh Green:So what we heard last night was that he was going to turn right back around and institute a new set of tariffs in order to, in his mind, regain the upper hand on an issue that he cares about. But the good news is that almost all countries and corporations want to keep the deal that they already made. Right, Scott? Knowing that the legal power that I as president have to make a new deal could be far worse for them. And therefore, they will continue to work along the same successful path that we had negotiated before the Supreme Court's unfortunate involvement.

14:55Stephanie Flanders:And Anna, when you think about the economic impact, I mean, there's a lot of different things going on here because you've got a potential hole in the balance sheet. There was about$140 billion worth of tariffs cut down, some of it replaced potentially by this new blanket policy. And there's this question of maybe having to provide the refunds when the government is already borrowing quite a lot, though the administration has resisted that idea so far. On the other hand, if you ended up just with the 10%, it would be a simpler regime than we had before. So that could be beneficial for businesses.

15:31Stephanie Flanders:They might even find it easier to pay. On the other hand, we know it's not going to stay simple because there are lots of negotiations underway. So sort of net-net, how do you think about the impact of that ruling on the economy?

15:42Anna Wong:So I mentioned that if the administration doesn't do anything, the economy was going to boom this year. and why one of the key factors was that trade policy uncertainty has been coming down sharply and that maximum drag from last year has already happened.

16:02Stephanie Flanders:And to be clear, it was the uncertainty that you thought was most costly. We actually haven't seen a big spike in inflation as a result or anything else. It's just the sheer uncertainty for businesses and investors.

16:12Anna Wong:Exactly. And when we were going through earning transcripts during the earning season for the fourth quarter and third quarter, we noticed that a lot of firms already have put in place plans to respond to these tariffs, mostly by cost efficiency savings, such as not hiring or diversifying supply chain and also automation. So part of the AI story of how firms across various sectors are adopting automation is a response to these increasing costs from tariffs and from labor. So suddenly, you know, it puts in doubt whether these tariffs will remain in place, because even though the administration is going to use 122, it's just a stopgap measure.

17:00Anna Wong:And the Congress has also expressed that they are not likely to have enough votes to put these tariffs permanently in place. So then what do firms do? I mean, they already, a lot of them have already made decisions, investment decisions, and also on diversifying the supply chains and automation in response to the past tariffs. So I think that just injected some kind of more decision uncertainty from a firm's perspective. It's unclear whether it's net positive or negative.

17:34Stephanie Flanders:You're literally scratching your head as you say that. It's the embodiment of a head scratcher.

17:39Anna Wong:Yes, because when you think about that$140 billion to$170 billion potential refund, so is this adding to the expected cash holding of firms, meaning that, well, suddenly they're going to plow all those expected cash flow into investment? Is this going to even fuel this investment boom and generating more inflation? That would be the opposite of what you think, that by lowering tariffs, you would actually reduce inflation. No, it's actually the other way around. On the other hand, you know, if he has threatened that he will raise the global tariff by 15 percent, and according to our trade team's calculation, that will bring the effective U.S.